Worldwide market conditions and trends

Price levels and stocks

At the beginning of 2021, the market was unexpectedly confronted with unprecedented price increases. Nothing in 2020 had pointed to this development. At the end of 2020, the global economy continued to be considerably negatively affected by the corona pandemic without any clear signs of economic recovery. The business community throughout the world had adopted a wait-and-see attitude and investments were on hold. Van Leeuwen too took account of these market conditions and the associated conservative forecasts. After the 2020 lockdowns the market, however, experienced an unexpectedly rapid recovery. The economy restarted in shocks of such magnitude that it created shortages of materials and major disruptions in the supply chains worldwide. Iron ore prices increased rapidly, resulting in sharp increases in the price of coils, a pre-material for welded pipes. Prices charged by our suppliers, as well as delivery times increased very rapidly.

By the end of January 2021, the market situation was unlike anything we had seen for the past fifteen years. Many parties were diligently looking for materials and allocations from suppliers; prices and delivery times shot through the roof. This development not only occurred in the steel industry, it affected raw materials in general. In the second quarter it became clear that this increase in prices and delivery times was going to persist throughout 2021. This was partly due to the Chinese government’s decision to introduce an export tax on steel and due to various safeguard measures implemented by the European Union.

After the summer of 2021, shortages became smaller and the prices of raw materials, such as iron ore, began to decline. This resulted in a limited price decrease for welded pipes. However, the very rapidly rising energy prices once again put strong upward pressure on prices, in particular for seamless pipes. At year-end 2021, this situation remained virtually unchanged. Although the supply chain stabilized somewhat, prices remain high and there is no immediate expectation of a strong decline. At year-end 2021, our average selling prices were over 30% higher than the 2020 forecast.

From the start of 2021, mounting delivery times and the limited availability of materials from our suppliers presented us with major challenges and issues. In 2020, we had consciously aligned our stock levels with the expected limited demand. With the unexpected favorable development of market demand at the beginning of 2021, it was important to bring stocks back up to higher levels. However, this proved to be virtually impossible due to the limited capacity of our suppliers as a result of material shortages and significantly increasing delivery times. With major effort we managed to keep the replenishment of our stocks in line with sales. Our globally well-developed sourcing network and our excellent long-term relationships with permanent and reliable suppliers were decisive in this respect. This enabled Van Leeuwen to respond as effectively as possible to the constantly changing conditions. We not only managed to effectively supplement and balance our stock portfolio, we were consequently also able to supply our large group of permanent customers with the right materials on time, thus enabling them to continue production.

This was not a simple task, but a complex puzzle for our international group of procurement and stock managers. We succeeded in accomplishing this thanks to their efforts and with the support of our suppliers. Our company, which doubled in size in 2020 and thereby also doubled the size of its network, was able to operate even more decisively. As a result of the acquisition of Benteler Distribution at the end of 2019 we now have a larger network with more stock-keeping locations supported by well-developed systems and business processes. This has improved our global footprint, and we now have more in-house knowledge and expertise. By the beginning of the fourth quarter, we had brought our worldwide stocks back up to appropriate levels.

Market demand and market conditions

Market demand, particularly in the industry segment, was good throughout 2021. Following the lockdowns in 2020, demand had already noticeably recovered by the end of 2020. This situation was carried forward into the beginning of 2021 and evolved much more favorably than originally thought, exceeding targets by about 10%. This improvement brought things back to pre-2020 levels. This was clearly visible in the automotive segment, but especially also in the mechanical engineering, civil engineering and construction markets throughout Europe. Order intake clearly grew. The order book grew considerably, particularly in our branches in Northern Europe, Central Europe and Switzerland. This resulted in bottlenecks in terms of the availability and supply of pipes and tubes.

As a result of global supply chain disruptions, material shortages and the associated mounting delivery times, supplying our customers with materials on time often turned into a complex undertaking. This was especially true for our customers with fixed purchasing contracts and delivery schedules and this required major effort on the part of everyone involved. We were able to continue to provide customers with the needed materials from our strong stock positions. Market demand continued to be equally strong throughout all of 2021. Customers in the automotive segment in particular were confronted with stagnating production due to the shortage of microchips and semiconductors, as a result of which delivery programs were regularly suspended. Towards the end of 2021, a number of our customer groups was once again faced with a decrease in production as a result of new corona lockdowns and a shortage of employees. This caused volumes to decline somewhat.

Prices continued to increase throughout the year, initially for welded pipes, but later in the year for seamless pipes as well. Stainless steel and alloyed steel prices also continued to increase. Van Leeuwen was forced to pass on these price increases to the market, especially because the scarcity of materials was rapidly increasing and stocks had to be replenished at significantly higher prices, assuming materials were available at all. Particularly due to the rapid price increases at the very beginning of the year, absorbing these prices was difficult for many of our customers. It was an issue that demanded the necessary resourcefulness and solution-oriented actions from our commercial teams throughout the world. Our people created solutions and based on their excellent relationship with our customers managed to make suitable arrangements in virtually all instances.

Throughout all of 2021, the situation in our energy markets was considerably less favorable for deliveries from stock as well as for projects. Developments in this market have been stagnating for several years. The energy transition is causing changes and uncertainties about the future. As a result, large projects involving fossil fuels in particular have disappeared, in the upstream, as well as downstream segments. A key development is the production of blue and green hydrogen, as well as synthetic fuels. A number of our customers is working on initial projects in this area. In close cooperation with these customers, we are monitoring developments and are responding to the adjusted material specifications.

A significant volume was nevertheless realized in the energy segment throughout the year involving the delivery of materials for projects acquired in previous years. We acquired a number of medium-sized projects over the course of the year. Our branches in the Gulf region were confronted with a very weak market. However, towards the end of the year, demand in the energy market in Asia and North America improved and we were able to further fill our order book.

Our branch in Australia performed very well, despite the tremendous difficulties experienced by our teams in replenishing stocks. The availability of transportation from Asia to Australia was extremely limited and problematic in terms of getting and keeping stock levels up to par. The consequences of the corona lockdowns were extremely drastic through almost the entire year, whereby our people, as well as customers worked from home and traveling was impossible. In spite of all this, the team managed to achieve a record result.

Corona pandemic

In 2021, we continued to be confronted with the corona pandemic in many respects. While the consequences were less drastic than they were in the previous year, many aspects were nevertheless present. Naturally, our attention first and foremost focused on the health and safety of our employees. Aside from this, we devoted effort to ensuring that business operations could proceed as effectively as possible. As a result of increased absence due to illness and quarantine measures, we were regularly confronted with occupancy problems in our warehouses and production facilities. This caused our delivery reliability regularly to be under pressure. By making the necessary effort and incurring additional costs, we were able to minimize the impact on our customers.

In contrast to 2020, the lockdowns virtually had no impact on market demand. In fact, demand was stronger than it was in previous years, which made keeping personnel levels up to par even more urgent. Up until the summer holidays, we had employees work from home either fulltime or part-time in almost all countries and travel, domestically or internationally, was either impossible or severely restricted. Not an ideal situation for a company that is highly dependent on human contact. Despite the tremendously improved digital contact facilities, looking for solutions, improving processes and coming up with innovations works best when people can work together as a team and can inspire each other. The restricted travel possibilities also had a hindering effect. Visiting customers and suppliers was not possible, nor were they able to come visit us. Establishing mutual contact between various country teams and management visits also became more difficult. Following the summer, travel restrictions were lifted to some degree and mutual visits resulted in much positive energy and new ideas. Unfortunately, lockdowns and restrictions were once again imposed starting in November. Regrettably, we were unable to hold our November annual international management meeting for the second year in a row.